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A Credit Mechanism for Selecting a Unique Competitive Equilibrium

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  • Qin, Cheng-Zhong

Abstract

This paper considers a credit mechanism for selecting a unique competitive equilibrium (CE). It is shown that in general there exists a “price-normalizing” bundle, with which the enlargement of the general-equilibrium structure to allow for default subject to appropriate penalties results in a construction of a simple credit mechanism for a credit using society to select a unique CE. With some additional conditions, there exists a common price-normalizing bundle with which any CE can be a unique selection for the credit mechanism with appropriate default penalties. The selection can be utilized to select a CE that minimizes the need for money or credit in trade.

Suggested Citation

  • Qin, Cheng-Zhong, 2006. "A Credit Mechanism for Selecting a Unique Competitive Equilibrium," University of California at Santa Barbara, Economics Working Paper Series qt43p4d5wr, Department of Economics, UC Santa Barbara.
    • Handle: RePEc:cdl:ucsbec:qt43p4d5wr
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    References listed on IDEAS

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    1. Shapley, Lloyd S & Shubik, Martin, 1977. "An Example of a Trading Economy with Three Competitive Equilibria," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 873-875, August.
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